Is a New Recession Ahead?

Jul 23, 2012 8:26am

Morning Business Memo:

New cracks may be appearing in the economy’s fragile recovery. The number to watch this week will be Friday’s first estimate of GDP growth for the second quarter. It may drop to under 1.5 percent, after weak 1.9 percent growth for the first three months of this year.

In recent days Wall Street economists have dropped their estimates of annual growth and some say the risk of a recession is rising.

“We’re worried about growth slowing down everywhere, and about it being self-reinforcing,” Peter Fisher, global head of fixed income for Black Rock, the world’s largest asset manager told USA Today. “I’m less worried about whether growth is slowing, and more worried about how much farther we have to go.”

Much of the US economy is linked to the global market. And once again Europe is having a negative impact on growth. The yield on the Spanish 10 year bond is now over 7.4 percent. If the trend continues Spain could be locked out of international markets and be forced to seek a financial rescue – just like Greece Ireland and Portugal. There are fresh reports that several regional Spanish governments will ask Madrid for financial support. Stock averages in Spain are down about 8 percent in the past two trading days.

So far earnings season has been somewhat better than expected. But that doesn’t mean sales are growing, just that many big corporate names have been successful at cutting costs and squeezing more productivity out of their workforce. Nearly 100 or the S&P 500 firms issued earnings warnings before the second quarter earnings season began. This morning toy maker Hasbro says its second-quarter net income dropped 25 percent on the stronger dollar and weak game sales. But its earnings still beat analysts’ expectations.

The Consumer Financial Protection Bureau is now one year old. How’s it doing so far?

“I think it’s made an enormous amount of difference,” says Adam Levin, founder of Credit.com. The CFPB announced its first enforcement action last week, and has “launched the know before you owe project to make prices and risks much clearer upfront.”

Levin says many consumers got into trouble with mortgages and student debt because they didn’t understand what they signed up for.

“For years we’ve dealt with situations where people have read one thing, but buried in the fine print was something else,” he said.

Know Before You Owe is an attempt to improve consumer financial education. Critics of the CFPB say it’s another headache for the banking industry to contend with. A financial panel in The House holds a hearing Tuesday on the CFPB’s impact on consumers access to credit.

Richard Davies Business Correspondent ABC NEWS Radio twitter.com/daviesabc

You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus